Tech sector has become 'more of a horizontal than a vertical'

The Federal Reserve left interest rates steady coming out of its June FOMC meeting on Wednesday, now projecting one rate cut by the end of the year as inflation continues to cool. Head of Citizens JMP Securities Mark Lehmann joins Market Domination Overtime to discuss the move and the current state of the market (^DJI, ^IXIC, ^GSPC).

Lehmann is overweight on tech, explaining that "tech has become much more of a horizontal than a vertical. And the people taking advantage of that and the multiple expansion we're seeing that obviously in semiconductors and other places is alive and well." He explains that as AI begins to seep into all sorts of sectors, companies will see rising multiples and profitability.

As Wall Street awaits a rate cut, Lehmann explains, "the Fed's got a really hard job to do, and I always say hindsight's 20/10. It's a lot better than 20/20. So we're going to talk about this six months from now and say 'I told you so' either way."

He adds, "I just don't expect them to not really think long and hard about the right timing for those cuts and the right number of those cuts, because the last thing you want to do is go too quickly. That being said, I think the market corrects much more quickly on its own, and we've seen that kind of higher for longer beget comfort within the investor public."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Melanie Riehl

Video Transcript

Tech heavy NASDAQ closing at a new record.

Meanwhile, investors weigh the two way pull of cooling inflation and the feds pull back on interest rate cuts for more on investors appetite.

Let's get right to mark lemon, head of citizens J MP Securities mark.

It is good to see you.

So as you point out, uh tech's been leading the way mark.

Do you expect it to continue leading the way?

And do you want to be overweight?

Tech here?

We have been overweight.

Um And I think it has led the way because I think the definition of tech has has enhanced from that basic definition we remember from even 5, 10 years ago.

So tech has become much more of a horizontal than a vertical and the people taking advantage of the that and the multiple expansion we're seeing that um obviously in semiconductors and other places is alive and well, Mark, I I find that uh concept interesting here.

So expand upon that a little bit.

What, what do you mean when you say tech has sort of expanded here?

What, what is under the tech umbrella now?

I I think you look across the, the the the domains of health care you look across frankly real estate, what you're seeing in the data center world where there used to be kind of valuate, valuations were more like real estate companies or healthcare was valuation.

More like a health care company which are somewhat smaller than the tech multiples we've seen historically and the company that have more of that tech within them are getting more of a tech multiple and you're seeing that over and over again, you're seeing that in media which again has not garnered the kind of multiples that we would expect the tech companies to have, but the more um tech within them, uh the higher they're multiple and I think that's not going to change any time soon.

And, and that specter of A I which will enhance that um will raise multiples, it'll raise profitability and those who win are going to win that much bigger.

Mark you, you saw the Fed yesterday, what they did and said anything surprise.

You, Mark No, II, I listen, I think you're still gonna have the debate and I think one day at a point is never gonna take everybody's um uh pulse and say that now we figured it all out and everything's fine.

Um I'm actually at a conference that citizens is hosting with a lot of uh venture funds and a lot of other funds and um all of them are talking optimistically about their potential to put more money to work.

I've yet to hear anybody at this conference.

We have over 100 people here talk about how things are not, are slowing down about how they're not seeing valuations that are stretched, how most of the people are optimistic and the rate backdrop obviously helps all that.

Do you think that they're missing any of the economic signals are out there or do you think we're sort of more than ever living in, um, an economy that is in different tranches?

Listen, I think the Feds got a really hard job to do and I always say hindsight is 2010.

It's a lot better than 2020.

So we're going to talk about this six months from now and say I told you so either way and I think the worst thing they can do is probably over cut the markets, sort of taking care of that themselves in terms of the way rates have gone down in the last couple of weeks.

So you'll see a lot of that, but I just don't expect them to not really think long and hard about the right timing for those cuts and the right number of those cuts because the last thing you want to do is go too quickly.

That being said, I think the market corrects much more quickly on its own.

Um And we've seen that kind of higher for longer to get comfort within the investor public.

And I think when we see the turn lower for rates.

I think the market is already pricing some of that in Mark.

We talked about some of the sectors that, you know, that you think are attractive right now.

What are, what are sectors you're less enthusiastic about, about in the US stock market?

Listen, I think the consumer um is, is, is resilient here.

I think the high end consumer is doing well, but some of the lower end consumers are going to have a harder time.

I think as, as, as, um, we've seen that some of their savings are being sopped up a little bit and I think we've seen that in some of the pricing of some of the consumer discretionary stocks and some of the other consumer stocks.

Um, I, I also think the real estate, um, uh, especially in commercials just gonna take longer than people want.

We'd like to take our medicine here.

We like fast solutions here in the stock market and here in the, in the States and this is not going to be quick.

I think it's well contained.

I think people are going, the time rates will help that if it goes down.

So I think that quick, like you pointed out today, that quick rise in the, in the re index and some of those which have been so far behind it's just gonna take longer.

Um, but I think it's, it's, it's, I, I'm one of the few people who think it's contained.

I think it's gonna, the people who have told you what it is they're seeing that sequentially, um, slightly improve and as long as it's not getting worse, I think that's as positive as you could say about it.